INTRODUCTION

Section 6 of the Income Tax Act 1961 talks about the Residential Status, Residential status
of a person means that whether the particular person is entitled to pay the income tax in India
or not?   Residential status of a person plays a vital role in the purpose of the levy of income
tax because the Income Tax department takes the tax based on the residential status of the
person. If a person is a citizen of India but at the end of the day, he can be a non-resident for a
financial year.1

This can be also a vice versa like a foreigner can be a citizen of that particular country and if
he is living in India for a particular time period and that time period is fulfilling the criteria
for the Resident of India then he can be taxable in India.  While the residential status of the
individual, company, a firm is determined in a different way. Each one has a different time
period for the determination of Resident in India.

The Income Tax Act, 1961, (Act) to consolidate and amend the law relating to income tax.
However, not everyone is liable to pay taxes on income under the Act. The Act makes certain
exceptions and exempts certain kind and extent of income from taxation. As per Section 2(3
1) of the Act, defines the term “Person” for whom we will assess the income. Further, those
who are liable to pay tax and whose incomes are assessed under the Act are known as
“Assessees” and the same has been defined under section 2(7) of the Act. Also for
determining the tax liability of the Assessees, the same has been further categorise on the
basis of Residential Status.

Residential status is a term coined under Income Tax Act, 1961, and has nothing to do with
nationality or domicile of a person. An Indian, who is a citizen of India can be non-resident
for Income-tax purposes, whereas an American who is a citizen of America can be resident of
India for Income-tax purposes, as per the Income Tax Act, 1961. Residential status of a
person depends upon the territorial connections of the person with this country, i.e., for how
many days he has physically stayed in India in any particular Financial Year.

Further it is to be note that the residential status of different types of persons viz an
individual, a firm, a company etc is determined differently. In this article, we have discussed

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about how the residential status of an individual taxpayer can be determined for the Previous
Year i.e 2019-2020 or Assessment Year 2020-2021.2

IMPORTANCY OF RESIDENTIAL STATUS

We are living in such a society where we don’t like the concept of sharing. We only think
about the individual while we should think of society for the large. That’s why we try all
possibilities to not share own hard money to the government. However, it is a very important
duty to pay the tax for the growth of the nation. Because the money which we are paying in
the form of tax that is directly or indirectly connected to our own development. 

At the time of filing of tax return, the residential status of the individual is very important.
Because the Income Tax Department calculate tax according to the residential status of the
individual, Residential Status of the individual, company, a firm is necessary because they are
commencing their business in India and for their business, they are using the resources of the
particular country and while using the resources they are earning money. So Residential
status of the particular person plays an important role while at the time of paying taxes.

BURDEN OF PROOF

One of the important questions arises that if any dispute arises in a calculation of residential
status of the individual, company or firm then the burden of proof will be on the assessee.
This is the question of the fact that assessee is a resident or non-resident and it is the duty of
the assessee to produce all the necessary facts to the Income Tax department to prove the
resident or non-resident.  

CLASSIFICATION OF RESIDENTIAL STATUS

As per the depending stay of the individual in India, Income Tax Law has classified the
residential status into three categories.  Residential status of an individual will cover the
financial year of an individual and as well as his/her previous years of stay.

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There are the following categories which classified the residential status of an individual.

1. Resident (ROR)
2. Resident but Not Ordinarily Resident (RNOR)
3. Non Resident (NR)

1. RESIDENT AND ORDINARILY RESIDENT

Under Section 6(1) of the Income Tax Act an Individual is said to be resident in India if he
fulfils the condition: If he/she stay in India for a period of 182 days or more in a financial
year, or He/ She is in India for a period of 60 days or more in a financial year and If he/she
stays in India for a period of 365 days or more during the 4 years immediately preceding the
previous year. 

As per section 6(6) of Income Tax Act, 1961 there are following two conditions when an
individual will be treated as the “Resident and Ordinarily Resident” (ROR in India.3

1. If He/ She stays in India for a period of 730 days or more during the 7 years of
preceding previous year. 

2. If He/ She stays in India for at least 2 out of 10 previous financial years which is
preceding the previous years. 
If the individual doesn’t satisfy either of the condition, then he is no eligible to qualify as
Resident and Ordinarily Resident (ROR).   

 Points which are essential while calculating ROR

 It is not mandatory that assessed should stay at the same place and it is not
mandatory that stay should be a continuous period of time which means it
shouldn’t be on a regular basis.

 Territorial of India includes territorial water, continental shelf, and airspace which
is up to twelve nautical miles.

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  When any person visits India then their calculation of resident in India will be
counted through their physical presence in India. And these physical presences
will be counted on an hourly basis. If any dispute arises while calculating their
physical presence, then the day on which he comes to India and the day on which
he leaves India shall be taken into consideration while calculating the Residential
status. 

 Determining the Residential Status of an Individual4

Under the Act, Residential Status of an individual is either Resident of India or Non-Resident
of India. The first thing that needs to be kept in mind is that the residential status is
determined with respect to the previous financial year – hence, an individual may be a
resident in one year and a non-resident in the next year.

As per Section 6(a) of the Act which mandates that an individual is said to be resident of
India in any previous year, if he satisfy any of the following primary conditions, otherwise
the person become Non-Resident of India, if an individual-

o Is in India in previous year for 182 days or more; or

o Is in India in previous year for 60 days or more and 365 days or more in the
immediate 4 preceding Financial Year.

Further Act provides certain exemption to following persons to comply only clause (i) to
become resident in India:

o Citizen of India who leaves India for taking up employment outside India;
o Indian Citizen who leaves India as a member of the crew of Indian Ship;
o Citizen of India or to a person of Indian origin who visit India ;

Further, Clause (a) of Section 6 of the Act, a Resident of India can be termed as Resident-
Ordinary Resident of India, if an individual satisfy all the following two conditions,
otherwise he can be termed as Resident-Not Ordinary Resident of India, if

o An individual is a resident in India for 2 years out of 10 previous years preceding

current financial year; and

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 o An individual is in India for 730 days or more in 7 previous years preceding current
financial year.

Amendment have also been made vide Finance Act, 2020, From F.Y. 2020-21, a citizen of
India or a person of Indian origin who leaves India for employment outside India during the
year will be a resident and ordinarily resident if he stays in India for an aggregate period of
182 days or more. However, this condition will apply only if his total income (other than
foreign sources) exceeds Rs 15 lakhs.

The Finance Act, 2020, has also introduced the concept of “Deemed Resident” whereby all
such citizen of India who are not taxable in any other country by reason of residence or
domicile or any other criteria of similar nature and such individuals have income exceeding
Rs. 15 lakhs from sources in India and from business controlled from India or Profession set
up in India. With effect From F.Y. 2020-202 1 deemed resident will be a resident and
ordinarily resident in India.

 Let’s understand the ROR with an example: 

Suppose Mr. Nayar who is a resident of India who went to another country in October 2018
while he had stayed in India during the financial year (2018-19) is for a period of 250 days
which is exceeding the 182 days and his stay in previous 7 financial years is more than 730
days then he is eligible for paying the tax in India. That’s why the income of Mr. Nayar will
be taxable in nature because he is fulfilling the condition of ROR.

2. RESIDENT BUT NOT ORDINARILY RESIDENT

An individual will be treated as RNOR when an assessee fulfill the following basic
conditions:VIn a financial year if an individual stays in India for a period of 182 days or
more; Or He/ she stays in India for a period of 60 days in a financial year and 365 days or
more during the 4 previous financial years.5

However, an Assesse will be treated as a Resident but Not Ordinarily Resident (RNOR) if
they satisfy one of the basic condition which is as follows:

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 1. If He/ She stays in India for a period of 730 days or more during the 7 preceding
financial year or;

2. If He/ She was a resident of India for at least 2 out of 10 in the previous financial
year.

 Let’s understand Resident but Not Ordinarily Resident with an example: 

Suppose Mr. Nayar who is in the Financial year 2017-18 stayed in India for a period pf 192
days so he was fulfilling the condition No 1 but He didn’t stay in India for more than 730
days during the period of 1st April 2010 to 31st March 2011 which was immediately
preceding the Financial Year 2017-18. So in this situation, Mr. Nayar will be qualified for a
Resident but Not Ordinarily Resident (RNOR).

3. NON RESIDENT

An individual will be qualified for Non Resident (NR) if He/ She satisfies the following
conditions which are as follows: 

1. In a financial year if an Individual stay in India for less than 181 days and

2. In a financial year If an Individual stay in India for not more than 60 days

3. If an Individual stay in India which exceed 60 days in a financial year but doesn’t
exceed the 365 days or more during the 4 previous financial years.   
STEPS TO CALCULATE THE RESIDENTIAL STATUS OF AN
INDIVIDUAL

 First, we check whether the Individual is falling under the category of exceptions
for the basic conditions or not?

 After that, we check that whether they are satisfying the basic condition of 182
days of more or not? if they are satisfying then he will be treated as a resident
otherwise he will be non–resident.  
If an Individual is not fulfilling the above condition, then we apply both the condition and if
he satisfies any of the basic condition takes then he is said to be a Resident.

QUESTION:- Mr. John, a foreigner came to India for the first time in 2014 and settled here.
He wants to file his income tax return for the assessment year 2015-16 and 2016-17.
Determine his residential status for the said two years.6

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SOLUTION:- For the assessment year 2015-16, the previous year is 2014-15

o For the previous year 2014-15, he is a resident, because, in the year ending 31st
March 2014, he has stayed in India for more than 182 days.
o For the previous year 2015-16, he is a resident for he has stayed in India for more than
182 days in the year ending 31st March 2016
o For the previous years 2014-15 and 2015-16, he is not an ordinary resident because he
is non-resident India for 9 out of 10 previous years preceding previous years and he
has not resided in India for 730 or more days during 7 preceding previous years.

 TAXABILITY

o RESIDENT - A resident will be charged to tax in India on his global income i.e.
income earned in India as well as income earned outside India.
o NR & RNOR - Their tax liability in India is restricted to the income they earn in
India. They need not pay any tax in India on their foreign income. Also note that in a
case of double taxation of income where the same income is getting taxed in India as
well as abroad, one may resort to the Double Taxation Avoidance Agreement
(DTAA) that India would have entered into with the other country in order to
eliminate the possibility of paying taxes twice.7

CONCLUSION

Origin, Nationality, place of birth, domicile doesn’t play a vital role in the calculation of
Income Tax. If a person who is an Indian citizen can be non- resident and the person who is
not a citizen of India and if they are residing in India, and if they are fulfilling the criteria of
Resident then as an eye of Income Tax they can be resident of India and they will be taxable
in nature. 

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A resident will be charged to tax in India on his global income i.e. income earned in India as
well as income earned outside India. While calculating the residential status of an individual
we check the physical stay in India and the physical stay of an individual is checked by their
physical stay of the previous years. However, the residential status of an individual is change
year to year.  Like a person who can be resident for this year they can’t be resident for the
next year if they are not fulfilling the resident criteria. That’s why once a taxpayer can’t be a
taxpayer for next year.

What is the relevance of residential status

There are two types of taxpayers—resident in India and non-resident in India. Indian income
is taxable in India whether the person earning income is resident or non-resident. Conversely,
foreign income of a person is taxable in India only if such person is resident in India. Foreign
income of a non-resident is not taxable in India.8

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1. Residential status – General norms

One has to keep in mind the following norms while deciding the residential status of an
assessee :

Different taxable entities – Section 6 lays down the test of residence for the following
taxable entities :

a. an individual ;

b. a Hindu undivided family ;

c. a firm or an association of persons or a body of individuals ;

d. a company; and

e. every other person.

Different kinds of residential status – Assessees are either (a) resident in India, or (b) non-
resident in India. As far as resident individuals and Hindu undivided families are concerned,
they can be further divided into two categories, viz., (a) resident and ordinarily resident, or
(b) resident but not ordinarily resident. All other assessees (viz., a firm, an association of
persons, a company and every other person) can simply be either a resident or a non-resident.

Different residential status in respect of different previous years of the same assessment
year not possible [Sec. 6(5)] – If a person is resident in a previous year relevant to an
assessment year in respect of any source of income, he shall be deemed to be resident in India
in the previous year(s) relevant to the same assessment year in respect of each of his other
sources of income [see  problem 24-P9].

Different residential status for different assessment years – An assessee may enjoy different
residential status for different assessment years. For instance, an individual who has been
regularly assessed as resident and ordinarily resident, has to be treated as non-resident in a
particular assessment year if he satisfies none of the conditions of section 6(1) in that year.

Resident in India and abroad – It is not necessary that a person who is resident in India,
cannot become resident in any other country for the same assessment year. A person may be
resident in more than one country at the same time for tax purposes, though he cannot have
two domiciles simultaneously. It is, therefore, not necessary that a person, who is resident in
India, will be non-resident for all other countries for the same assessment year.

Onus of proof – Whether an assessee is a resident or a non-resident is a question of fact and

it is the duty of the assessee to place all relevant facts before the Income-tax authorities—Rai
Bahadur Seth Teomal v. CIT [1963] 48 ITR 170 (Cal.).

In the case of V.VR. N.M. Subbayya Chettiar v. CIT [1951] 19 ITR 168, the Supreme
Court held that section 6(2) makes a presumption that a Hindu undivided family, a firm or
association of persons has to be a resident in India and the onus of proving that they are not
residents is on them. However, the burden of proving that an individual or a company is
resident in India lies on the department—Moosa S. Madha & Azam S. Madha v. CIT [1973]
89 ITR 65 (SC).